Over the last decade, the prediction market industry has grown more slowly than one might have expected given the technology’s unique combination of simplicity and power. The main source of resistance to enterprise prediction markets has been the information and power-sharing that this new approach entails. Those traditionally in control of the collection and distribution of information are often reluctant to let go of their prerogatives.

Yet, the pace of adoption has also been relentless. One has to wonder what is the deep driver to adoption that has been able to effectively counter the natural and powerful resistance to share information and power.

In the latest issue of CNBC BUSINESS magazine, a feature article on NewsFutures provides some answers, beyond the traditional nod to Surowiecki’s “The Wisdom of Crowds” book whose best-seller success is itself a symptom of something deeper and more powerful: a demography-enabled cultural shift:

Servan-Schreiber suggests that it may not be long before participatory technologies become a prerequisite for employees reared on a diet of blogs and wikis. “A whole generation of workers has grown up with the internet and everything it entails,” he says. “It means they expect to be heard and to be part of the conversation all the time, including at work. They expect that people will listen and take them seriously. Prediction markets provide an answer for that yearning.”

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His message for these companies is that resistance is futile; prediction markets are, literally, the future. “We are in tune with collective intelligence and participatory process; prediction markets can easily involve thousands of people. Our industry is surfing a huge demographic wave and that is what will make us ubiquitous.”

Following the controversy about hacked climate-science emails that has exploded in the last few days, our friend Robin Hanson has proposed that climate science could benefit from the clarity that prediction markets are uniquely able to bring to hotly disputed issues in science and elsewhere. Nate Silver, the polling wiz of 2008 election fame, agrees and details some of the best reasons to back environmental prediction markets.

This seems a good time, then, to revisit a presentation about “Environmental Futures” that we delivered back in September 2004 at a California Institute of Technology seminar graciously hosted by economist John Ledyard. Robin was there too, and our presentation nods gratefully to his famous paper “Could Gambling Save Science” as the spring board for our ideas about various implementation scenarios for Environmental Futures.

Five years later, is the world finally getting ready for some of these ideas to become reality? We hope you will find this presentation stimulating…

There are few things quite so thrilling and/or anxiety-inducing as placing a bet. That’s why, for the benefit prediction traders around the world, we recently compiled a score of relevant quotes from some of the greatest minds. Some will inspire you to bold action, some will help you think twice before committing to a particular opinion, all offer a measure of comfort in the face of an unpredictable future.

Americans across the country know that the best ideas often come from workers – not just management. — Barack Obama

Given that “the Crowd” in its infinite wisdom elected him to the coolest job in the World, it’s no surprise that POTUS believes in the wisdom of crowds. But seriously, the White House is putting it’s money where the President’s mouth is by kicking off today the “SAVE Award“, a competition among all Federal workers to produce the best idea for saving Government money and improving bureaucratic efficiency.

While the intention is wonderful – it echoes the wishes of more and more chief executives in the Private Sector to “hear the voices of those on the front lines” – the implementation is, in our view, overly simplistic. Here’s how it works: Everyone submits their ideas through a secure website, then a special committee of high-ranking OMB officials reviews them and submits a short list to the President who handpicks the winning idea.

What’s wrong with this process?

There is noaggregation of the collective wisdom. The crowd is called on only to submit ideas, not to help evaluate them, which is the critical step in the delicate wisdom of crowd recipe. Instead, a bunch of political appointees in the OMB will review all the ideas and decide which will go on the short list that the President will see. Needless to say, we would not dare propose such a simplistic and cumbersome process to our enterprise clients looking to harvest and select innovative ideas from their employees.

Here’s how it should be done: After everyone has proposed their ideas, ask everyone to bet (not vote) on which idea the President will ultimately select – or alternatively, on which ideas will be short-listed by the OMB officials. The crowd’s betting will quickly and efficiently produce a ranking of the best-to-worst ideas, and the result will be less arbitrary than what you can expect from a close-knit group of bureaucrats. Now, it doesn’t mean that the OMB officials cannot have the ultimate say on what ends up on the short list that goes to the Oval Office, but their choice is at least informed by the crowd’s aggregate selection.

We’re glad to see that the Government is looking for ways to save money, but the next time the Administration tries to leverage the wisdom of crowds, it should not be afraid to consult with some collective intelligence specialists first. So as not to add to the Federal Deficit, some of us might even help out for free.

The IEhM connects health care experts across the globe to predict the outbreak and spread of various diseases. It currently offers markets on Influenza, Swine Flu, and Syphilis. Each trader is given $100 worth of educational grant to stake on his or her predictions. The operation is funded by grants from government agencies and private foundations.

On both technical and humanistic fronts, the IEhM pushes the envelope. It is certainly the most socially valuable prediction market in existence. NewsFutures is very proud to play a bit part in this great endeavor, having provided the University of Iowa with the prediction market platform with which the IEhM has been developed (with extensive customization by the very talented IEhM development team).

Emile is presenting a paper today at the Annual Meeting of the International Studies Association in New York, as part of a panel discussion on “the role of normative and performative predictive ideas” in International Relations, chaired by Ariel Colonomos of CERI-CNRS.

Emile’s paper overviews how prediction markets might benefit forecasting in international relations. You can download it here in pdf.

These videos were filmed at an international workshop on “Principles and Mechanisms of Collective Wisdom” organized by the eminent philosopher Jon Elster at the Collège de France in Paris on May 22, 2008.

PART 1: EVIDENCE OF PREDICTION MARKET ACCURACY

PART 2: WHY PREDICTION MARKETS ARE ACCURATE

There followed a challenging Q&A session which is covered in the five next videos (one question and answer each).

Q&A 1: Aren’t political prediction markets just following the polls?

Q&A 2: Why did prediction markets fail to predict the lack of weapons of mass destruction in Irak?

Q&A 3: Would market predictions still be accurate if everyone believed them?

In addition to Emile’s lecture on prediction markets, the workshop featured a rich variety of social science perspectives on the issue of collective intelligence, and all these lectures are viewable (in English) in high-quality streaming video. For the audience of this blog, I especially recommend the brilliant lecture by Scott Page on the power of diversity.